Thursday, May 30, 2013

Investment Promotion and Protection Agreements (IPPAs) : A less sung story

One of the key benefits that is usually put forward when promoting Mauritius is an International Financial Centre is its network of Double Taxation Avoidance Agreements. DTAAs are indeed very valuable instruments as they not only ensure that investors do not get taxed twice over the same income but also benefit from reduced rates on flows such as capital gains, interest and dividends. DTAAs and their various provisions are usually well known and appreciated. What is however less known and appreciated are the Investment Promotion and Protection Agreements that Mauritius has in place with 39 countries including no less than 19 of them on the African continent.

IPPAs in essence are meant to create favourable conditions for greater investment by the investor of one state in the territory of the other state, and also to provide reciprocal protection of these investments. Though they do vary from one agreement to another, the important provisions tend to be common to most of them. 

The definition of investment in IPPAs is quite wide and covers an extensive range of assets with explicit mention of movable and immovable property, mortgages liens and pledges, shares stocks and debentures, intellectual property and concessions for extraction of natural resources. The latter provision, as one would imagine, is quite important for the agreements we have with African countries. Also protected are the returns associated with with an investment, including profits, interest, capital gains, dividends, royalties and fees. 

IPPAs provide that the investor is guaranteed a treatment that is not less favourable than that which the state accords to investments and returns of its own nationals. This equal treatment is also applicable for restitution or compensation relative to cases where losses have been suffered on investments owing to war, revolt or revolution and riots or state of emergency.

One of the other key provisions of IPPAs is the guarantee that investments will not be nationalized or expropriated, and if ever required for public purposes or under due process of law, that prompt, adequate and effective compensation be paid. And it is ensured that any payment will not be unduly delayed as interest is otherwise applicable thereon. Investors affected by expropriation are also entitled to review by a court of law or any other impartial forum.

IPPAs also guarantee investors the free transfer of payments relative to their investments and returns including proceeds of the sale of investments, all returns accruing thereon, repayment of loans, license fees, earnings of expatriate staff as well as for any compensation provided under the agreement. This security for externalisation of funds is further reinforced by providing that transfers are to be made in a convertible currency at a market exchange rate, or the rate for the conversion of the local currency into SDRs.

One may argue that the IPPA is in any case subject to the good will of the state having contracted it. Indeed we have so far seen the provisions relative to recourse to local courts, but IPPAs also allow for international arbitration in case a legal dispute between an investor of a contracting state and the other state has not been amicably settled after a period of time (usually 6 months). Most IPPAs also define the arbitration body to which disputes can be referred to and these include the International Centre for the Settlement of Investment Disputes (ICSID) or an international arbitrator or adhoc arbitration to be established under the Arbitration Rules of the UN Commission of International Trade Law. Some IPPAs also provide that arbitration be offered by the International Arbitrator Institute of the Stockholm Chamber of Commerce.

If it is true that IPPAs have not often been tested, they do however act as an effective deterrent to any unilateral action of a contracting state against an investor of the other state. This in itself stands as a strong advocacy for these agreements.

Source: Interview with Kamben Padayachy, Deputy CEO, Head of Global Banking, Treasury & Markets at AfrAsia Bank. (l'express 22 May 2013)

No comments:

Post a Comment